Regulatory: Understanding the “carbon copy prosecution”

At the risk of stating the obvious, no company or individual wants to find itself under investigation by U.S. or foreign authorities. A mindset of “getting it wrapped up” naturally assumes top priority status for in-house counsel overseeing any such official inquiry and charged with cabining the inquiry’s business-disrupting impact. In-house and outside counsel, therefore, understandably breathe a sigh of relief when the end appears to be in sight, that is, when (best case scenario) the authorities opt to drop the investigation or when (more likely) the parties ink a non-prosecution agreement (NPA), deferred prosecution agreement (DPA) or old fashioned plea agreement. After all, when the costly ordeal is finally over, isn’t it time to celebrate?

Time to bid adieu to the days of one-dimensional government investigations?

As a survey of recent global enforcement trends confirms, resolving a matter with the original investigative authority may well only be the start of the legal woes. And this is no more true than in the area of anti-corruption (that is, the compliance hot topic covered by enactments such as the FCPA, Travel Act, UK Bribery Act, German Anti-Bribery Act, India’s Prevention of Corruption Act, etc.). The very same facts that give rise to the initial investigation in Country A could—and, indeed, often do—lead to a successive prosecution in Country B, Country C, and so forth.

Carbon copy prosecutions are defined as successive, duplicative prosecutions by multiple sovereigns for conduct transgressing the laws of several nations, but arising out of the same common nucleus of operative facts. In other words, it describes a second country filing an anti-corruption enforcement action based on the charges, guilty plea or admissions from an enforcement action in the first country.

A carbon copy case study

A tangible and arguably the most well-known example of this phenomenon comes courtesy of oilfield services giant the Halliburton Company. In 2009, Halliburton paid U.S. authorities $579 million to settle an international bribery investigation into its Nigerian contracts. But not long afterwards, in 2010, Nigerian anti-corruption authorities filed criminal charges against Halliburton, other companies and many of their executives for the same conduct that had been part of the U.S. criminal and administrative resolutions. Halliburton swiftly settled the Nigerian case (after Nigerian authorities sought extradition of Vice President Richard Cheney), but this example clearly demonstrates the potential risk a company and its executives face in multi-border investigations: that another country will initiate prosecutions based on the facts and admissions from the U.S. matter.

How to avoid the most common carbon copy pitfalls

There are a number of concrete steps corporate counsel can take to limit a company’s exposure to carbon copy prosecutions. In particular, counsel should pay close attention to the wording of any factual statements in a negotiated resolution and keep any such statements as simple as possible. This will allow the company to be able to defend itself more vigorously against any potential carbon copy prosecutions. In addition to changing a company’s approach to resolving an investigation, carbon copy prosecutions may change the way companies approach self-reporting. Companies will need to carefully weigh the costs and benefits of front-end disclosures to both theU.S.and any foreign jurisdictions, as well as the timing of such disclosures. There may be benefits to simultaneous disclosures that may alleviate some of the potential risks, but careful consideration of the double-jeopardy implications is a must. Companies will also want evaluate the possible collateral estoppel effect of any of the proceedings.

Parting thoughts

The days of one-dimensional government investigations appear to be over. Given that a country’s incentive to vindicate its own laws is not insubstantial, especially when a company or individual has already admitted, in a foreign proceeding, to violating local law, it should not come as a surprise that carbon copy prosecutions are here to stay. Both named parties and non-parties implicated in a resolution in one country ought, therefore, give due consideration to the potential impact of that resolution in another territory, especially in light of recent trends pointing to coordinated multinational cooperation and successive enforcement proceedings. Some say success breeds imitators. That observation appears to be part and parcel of the new global enforcement landscape.